Are any of you battling the IRS over a Federal IRS Tax Lien or Levy? If you are in this unfortunate situation it would appear that for you have ignored countless IRS bills, letters and certified letters over a period of perhaps many years. You may think there is nothing you can do now to fight back, but you might have one last chance: you should consider requesting a Collection Due Process hearing (CDP) to temporarily stop enforcement action of a lien, levy or garnishment until your tax attorney puts forth her best “offer in compromise” to settle your tax debts with the Government. So stay with us here on TaxView with Chris Moss CPA Tax Attorney to find out how you can fight back with a CDP hearing and save taxes..
So how does a taxpayer get served with an IRS lien in the first place? One reason could be payroll tax withholding that had not been remitted to the Government. Another reason could be the filing of a tax return with a large amount of tax due but you have no money to pay the tax. Or perhaps you never filed a tax return in the first place and the Government has filed one for you? To make matters worse, you never responded to the IRS letters you received and thereby gave up your right to litigate the substantive issues as to whether or not you owed the tax in the first place. Now you are only left with an IRS lien, levy or garnishment coming your way, and left with only one way to fight back: the CDP hearing. So what is a CDP hearing?
First, your CDP hearing must be before an impartial noninvolved appeals officer. Moosally v IRS US Tax Court (2014). Patricia Moosally never argued that she did not owe payroll tax and penalties. In fact, she consented in 2001 to the Government assessing her almost $50K in penalties back to 2000. Apparently the IRS was unable to collect this tax from Moosally and years later in 2010 Moosally submitted Form 656 Offer in Compromise (OIC) for $200 claiming she had insufficient assets to pay. Moosally and the IRS represented by among others appeals officer Smeck could not come to an agreement so the Government issued her a Federal tax lien in 2011. Moosally asked for a CDP hearing and to Moosally’s surprise there was Ms. Smeck again involved in a minor capacity during the hearing. Unable to resolve the case at the CDP hearing level, Moosally appealed to US Tax Court for relief in Moosally v IRS US Tax Court (2014).
Judge Wells makes clear that pursuant to Section 6321 a notice of Lien must be accompanied by the right to request an appeals hearing to be conducted by an impartial officer or employee of the Appeals office who had no prior involvement with respect to the unpaid tax. Section 6320(a)(3)(B)(b)(1) Moosally argues for a new hearing claiming the appeal was tainted with prior involvement by Ms. Smeck. The Government denied this claim. US Tax Court sided with Moosally concluding that she was entitled to a new CDP hearing before an impartial officer. Moosally wins (at least for another hearing) IRS loses.
Second, your CDP hearing is not about whether or not you owe the tax, but rather whether the IRS has unreasonably rejected your offer in compromise or “settlement” based on your ability to pay the tax. Remember by the time you are being levied attached or garnished, the time to appeal based on the merits to US Tax Court has long vanished 90 days after you were issued a notice of deficiency perhaps years if not many years earlier. All you can do now is to appeal that the Government unreasonably rejected your settlement offer based on your ability to pay. Which brings us to what is called an “offer in compromise”. It is your best chance to settle with the IRS before the liens, levy, garnishments and attachments are issued to your employer, bank, customers and vendors.
Why is the CPD hearing so important? If the IRS unreasonably had rejected your offer in compromise, it is at the CPD hearing that you can have the IRS decision overturned and if you are still not satisfied you can take your case all the way up to US Tax Court. But as Eugene Dinino found out, In Dinino vs IRS US Tax Court (2009) the US Tax Court will not tolerate taxpayers using CPD hearings just to delay the inevitable.
Dinino owed the US Government over $600K in back payroll taxes and penalties from 2000-2004. For many years the IRS sent Dinino many notices including a final “Intent to Levy Notice” in 2008. The levy notice advised Dinino that he could receive a CDP hearing before the IRS office of Appeals. In April of 2008 the IRS received from Dinino’s tax attorney Form 12153 requesting a CDP hearing so he could submit an Offer in Compromise. After almost a year of cancelled appointments and no shows the IRS finally closed the appeal and sustained the levy. Dinino appealed to US Tax Court in March of 2009 claiming he was never granted a CDP hearing and was never allowed to submit an “offer in compromise”.
Judge Gustafson points out that “except when the underlying tax liability is at issue, the Court will review the determination of the Office of Appeals for abuse of discretion, citing Goza v IRS, 114 T.C. 12 (2000)--that is, the Court will decide whether the determination was arbitrary, capricious or without sound basis in fact or law citing Murphy v IRS, 125. T.C. 301 (2005). Affirmed on appeal 469 F.3d 27 (1st Cir 2006). In this case Dinino simply failed to appear to the hearing and failed to participate in various other telephone hearings. Judge Gustafson further opines that Dinino is not guaranteed an “indefinite number of sessions that Dinino unilaterally demands. Finally Judge Gustafson concludes that the appeals officer conducting the CDP hearing was never given an updated Form 433-A providing the Government current adequate financial information. Therefore it was not an abuse of discretion for the appeals office to sustain the levy. IRS wins Dinino loses.
So what does this mean for anyone facing a levy, lien, or attachment? If you face imminent lien or levy or attachment of your wages, your bank accounts or your real estate and other assets, make sure your tax attorney files for the CDP hearing submitting Form 12153 allowing you one more chance to settle with the Government. If you have submitted your Form 433-A for an offer in compromise and made your best offer, and you believe the Appeals decision process has been arbitrary and capricious, by all means appeal to the US Tax Court for relief. Work with the Government towards a fair and reasonable “offer in compromise” to settle your case before the levy, liens and attachments come flying at your vendors, employer and real estate. You will be glad you did.
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Chris Moss CPA Tax Attorney